5 Major U.S. Banks Report Profit Gains : But Losses From Consumer Loans Increase in Period

Five of the nation's biggest banks reported higher third-quarter profits Tuesday, but the earnings were tempered by markedly higher losses on consumer installment and credit card loans.

The higher earnings were due to the usual factors--a favorable spread between what the banks pay for money and what they charge borrowers, increased income from securities and currency trading and higher fees for new loans.

Analysts said healthy profits had been expected and resulted from stable interest rates and vigorous movement in stock and currency markets. James McDermott of the Wall Street investment firm of Keefe, Bruyette & Woods said the results for the first nine months of the year put the U.S. banking industry on track toward overall earnings growth of 11% to 12% for all of 1985.

'Robust' Growth

Citicorp, the nation's largest banking firm, said "robust" growth in its individual banking business helped the company record a 13.5% earnings gain over last year's third quarter. The New York-based parent of Citibank earned $227 million for the three months ended Sept. 30, compared to $200 million a year ago.

The company said net income from its individual banking division, which serves consumers, rose to $71 million from $53 million a year ago, up 34%.

Its two other main divisions reported smaller increases. The institutional unit, serving corporate customers, earned $175 million, compared to $170 million in 1984's third quarter, while the investment banking unit earned $29 million, up 7.4% from $27 million a year ago.

Citicorp benefited from an $18.7-million one-time reduction in tax liability because of a change in New York city and state tax laws.

Consumer Losses Double

The firm's results were adversely affected by higher operating expenses and larger set-asides for consumer and commercial loan losses, which directly reduce earnings.

Consumer credit losses more than doubled from $85 million in the third quarter of 1984 to $198 million in the current period. The bank said its aggressive national credit card marketing effort was paying off in greater volume but was costing it in considerably higher losses.

The company's commercial loan loss provision grew to $148 million from $61 million a year ago.

New York-based J. P. Morgan, parent of fifth-ranked Morgan Guaranty Trust, reported a 73.9% profit increase, reflecting a large gain from the New York tax law change.

Morgan's third-quarter net rose to $209.4 million from $120.4 million a year ago. The results include a one-time tax gain of $39.4 million, which accounted for nearly half of the year-to-year improvement.

The firm charged off $125 million in bad loans in the third quarter, compared to $30 million in the 1984 period.

Security Pacific, based in Los Angeles and the nation's seventh-largest bank, said it earned a record $84 million in the three months ended Sept. 30. Profits for the quarter were up 12% over last year.

"Slightly lower interest rates and continued gradual economic growth produced gains across the board in most of our business units," Chairman Richard J. Flamson III said. "Continued pressures on several domestic industries are still being felt and are impacting on net income in some of our divisions."

The bank reported that, unlike many of its peers, its net interest margin, or "spread," narrowed from a year ago. However, interest income grew because of a higher total of outstanding loans.

Wells Fargo Posts Record

The bank's provision for credit losses grew to $70.1 million from $60.1 million a year ago. But the reserve for bad loans shrank as a proportion of total loans and leases to 1.56% from 1.67% in 1984.

San Francisco-based Wells Fargo, the 12th-biggest U.S. banking firm, also posted record quarterly profits, earning $48.6 million, an increase of 11% over $43.8 million last year.

Chairman Carl E. Reichardt attributed the results to favorable spreads and growth in consumer and construction lending. But consumer loan losses grew faster than total loans.

In the third quarter, Wells Fargo charged off $1.3 million in installment loans, compared to zero last year, while credit card losses grew to $15.2 million from $2.4 million.

Overall profitability improved, however, as measured by return on assets and equity.

Crocker National, parent of San Francisco-based Crocker National Bank and the 17th-largest U.S. banking company, said its profit rose to $9 million from $6 million a year ago. For the first nine months, its profit was $28 million, compared to a loss of $108 million a year ago.

Midland Bank PLC of Great Britain became sole owner of Crocker earlier this year and is acquiring $3.1 billion in Crocker's foreign and non-performing domestic loans.